Penzijní fond Komerční banky exceeded the number 470,000. active policy holders. Penzijní fond Komerční banky, a.s. Annual Report 2007

Transcription

1 STRATEGY VALUES PEOPLE RESULTS OUTLOOK FACT AND FIGURES Penzijní fond Komerční banky, a.s. Annual Report 2007 Penzijní fond Komerční banky exceeded the number 470,000 active policy holders

2 My future. My pension fund. Differentpeople, different objectives The objective of the pension fund is to ensure financial performance with an acceptable level of appreciation while maintaining a conservative approach to investment opportunities. The merits of Penzijní fond Komerční banky comprise accessibility of information and openness coupled with a professional approach, which help the clients easily achieve their goals.

3 Penzijní fond Komerční banky, a.s. has operated on the Czech market since This wholly owned subsidiary of Komerční banka, a.s. is included in the Société Générale Group. In 2007, company achieved an almost 12 percent share on the market according to the number of policy holders and its share measured in terms of the volume of the policy holders funds is around 14 percent. Penzijní fond Komerční banky 1

4 Company Profile 6 Selected Financial Highlights 8 Foreword of the Chairman of the Board of Directors 10 Report of the Board of Directors 11 Strategy of the Development of the Fund and the Outlook for Major Events in Market Share 13 Business Activities 13 Information Technology 14 Human Resources 14 Comments on the Financial Situation and Results 16 Statutory Bodies 16 Board of Directors 17 Supervisory Board 18 Organisational Structure 2

5 Contents Ownership Structure 20 Report of the Supervisory Board 22 Independent Auditor s Report 24 Sworn Statement 25 Financial Section 26 Balance Sheet as of 31 December Off Balance Sheet Accounts as of 31 December Profit and Loss Statement for the year ended 31 December Statement of Changes in Equity for the year ended 31 December Notes to the Financial Statements for the year ended 31 December Report on Related Party Transactions 3

6 Company Profile Company Profile Penzijní fond Komerční banky a.s. (hereinafter PF KB, Penzijní fond Komerční banky or the Company ) was formed on 27 July 1994 by Komerční banka, a.s. (hereinafter Komerční banka ), as a joint stock company providing a retirement benefit scheme with state contributions in accordance with Act 42/1994 Coll., on State Contributory Supplementary Pension Insurance. Penzijní fond Komerční banky is one of the Czech Republic s largest and most significant pension funds. PF KB effectively manages its clients funds while focusing on long-term stable appreciation of the policy holders savings and managing its own costs. For this reason, PF KB pursues a conservative investment strategy. In the business segment, it further strengthens the significance of distribution channels within the Komerční banka Group, which will continue also in PF KB offers a professional level of services for the policy holders and employees, as well as partners from among the agency companies. 4

7 Company Profile Market Position of the Company At the end of 2007, there were more than million policy holders in the retirement benefit schemes in the Czech Republic. The double-digit growth of the market has continued since 2004 and achieved 10 percent in Penzijní fond Komerční banky saw a year-on-year increase of 12.9 percent. In 2007, almost 90,000 new policy holders concluded their retirement benefit policies with PF KB. The dynamic growth of PF KB thus again exceeded the market growth. Measured in terms of the number of policy holders, the market share thus increased to almost 12 percent. Measured in terms of the funds provided by the policy holders, the market share once again increased to 14 percent. The increase in the number of policy holders in prior years also sped up, as did the increase in the funds invested by the policy holders. On a long-term basis, PF KB continues to provide a corresponding level of appreciation in respect of the policy holders funds, which predominantly attracts new prospective customers while stabilising the existing policy holders. A conservative investment strategy, effective functioning of the Fund and highly developed structure, along with the support of Komerční banka, are reflected in the rating appreciation of PF KB. The national rating at the Aa1.cz level, awarded in 2007 and confirmed in April 2008 by a reputable rating company, Moody s, is the highest rating a pension fund can receive in the Czech Republic. PF KB also takes a leading position in applying information technologies to its administration and communication with retirement benefit policy holders. This, coupled with other development trends, facilitates more effective administration of the retirement benefit scheme with the aim of achieving the appropriate level of services provided to policy holders. The availability of information and an open approach to the public are among the Company s many pluses. In 2007, the successful results of the Company in the area of business and finance were markedly supported by Komerční banka, a.s. and other companies from within the Komerční banka/société Générale financial group principally Modrá pyramida stavební spořitelna, a.s., and Investiční kapitálová společnost KB, a.s. PF KB noted a year-on-year increase in the number of clients of12.9%. 5

8 Selected Financial Highlights Selected Financial Highlights The total volume of of assets increased by15% to CZK 23.3 billion. Unit 2007 Total assets CZK thousand 23,261,107 Share capital CZK thousand 200,000 Equity CZK thousand 358,380 Profit/loss CZK thousand 562,403 Profit after tax CZK thousand 562,256 Market share (number of policy holders) % 11.9 Market share (managed funds) % 14 Volume of transactions (managed funds) CZK thousand 22,667,727 Amount of transactions (number of active clients) Persons 470,315 Number of employees Persons 58 Rating (Moody s) Aa1.cz 6

9 Selected Financial Highlights Development of the number of policy holders 500, , , , , , , , , , Development of the policy holders funds (CZK million) 25,000 20,000 15,000 10,290 12,242 15,199 18,772 22,668 10,000 5, Development of the profit and loss (CZK million) The total number of policy holders was 470,315, which represents a 11.9% market share. 7

10 Foreword of the Chairman of the Board of Directors Foreword of the Chairman of the Board of Directors Ladies and Gentlemen, Retirement Benefit Policy Holders, and Business Partners, I would like to present to you the results of Penzijní fond Komerční banky, a.s. for the year ended 31 December In 2007, we managed to fulfil the ambitious business and financial objectives which were set for 2007 and we are thus able to continue achieving the successful results of prior years. The entire retirement benefits market was prosperous in Taking advantage of its growth potential again, the market increased by almost 10 percent to a total of 3.96 million policy holders. The amount of policy holders funds, which are managed by the 10 pension funds currently active on the market, increased by 19 percent to CZK 162 billion. More and more people are becoming fully aware of the importance of savings in pension funds as they do not want to rely on the State-run pay-as-you-go pension system. While at the pension system reform is being postponed, there is no doubt that the debates on the necessity of the reform resulting from the anticipated demographic development in the Czech Republic contributed to the increase in the number of policy holders. I am very pleased to report that the number of new policy holders has been increasing and PF KB significantly contributed to this growth. In 2007, PF KB concluded almost 89,000 new retirement benefit policies. We thus achieved the number of 470,315 active policy holders, whereby we fulfilled the objective set out in the annual report for the year ended 31 December The market share measured in terms of the number of policy holders thus increased to 11.9 percent, which ranks us fourth among the competition of 10 pension funds. We managed to exceed the dynamics of the market, thereby continuing the trend initiated in prior years. The total amount of the policy holders funds increased by 21 percent to CZK 22.6 billion in 2007, which means an increase of the market share to 14 percent (2006: 13.7 percent), thus placing us in fourth position on the market, which corresponds to our position in terms of the number of policy holders. 14,000 employers cooperated with our pension fund at the end of In 2007, the average total monthly contribution to the retirement benefit schemes operated by our pension fund achieved CZK 675, which markedly exceeds the average monthly contribution on the market. PF KB s generation of profit for the year ended 31 December 2007 followed the trend in the whole sector, where the volume of generated profit increased by 6.2 percent year-on-year. The low increase was principally due to significant turbulences on capital markets triggered by the problems on the American subprime mortgages market. As a result, the growth of the Czech capital market was significantly slowed down. PF KB generated a profit of CZK 562 million for the year ended 31 December The generated profit enabled the General Meeting to decide on appreciating clients funds at 2.33 percent p.a. for

11 Thegrowth of the market share in the volume of assets increased to 14 percent and thus helped to maintain the fourth position on the market. In February 2007, PF KB was awarded a significant rating. The reputable rating agency Moody s awarded the Company a national rating of Aa1.cz. The rating predominantly reflects the conservative investment strategy of the fund as well as its effective operation and support of the parent company Komerční banka, a.s. The rating reflects PF KB s ability to meet annual commitments made to its policy holders within its investment portfolio. The awarded rating is the highest rating that can be obtained by a pension fund in the Czech Republic and it is a significant signal for employers who consider providing retirement benefit contributions to their employees and for existing and future policy holders. Maintaining this standard of excellence for our clients in the future is a challenge willingly accepted by PF KB. The Aa1.cz rating was affirmed in April PF KB has two principal aims in 2008 to strengthen the position of Penzijní fond Komerční banky on the market by achieving 500,000 clients and to securely and effectively manage our policy holders funds. To fulfil these aims, we will predominantly use the experience and opportunities provided by PF KB s shareholder, Komerční banka, a.s., the international Société Générale financial group, our employees, external business partners, including employers, and last but not least, suggestions from and comments of our policy holders. In conclusion, I would like to thank PF KB s employees for their daily fulfilment of tasks and dedication, the business partners for their quality cooperation and continuous goodwill, employers who contribute to their employees retirement benefit schemes with our fund, and most importantly all our policy holders for their trust, which is our greatest award and an obligation. I wish you and our Company much success in Pavel Jirák Chairman of the Board of Directors and Managing Director 9

12 Report of the Board of Directors Report of the Board of Directors Penzijní fond Komerční banky was awarded the highest possible rating in the Czech Republic the Aa1.cz national rating by the Moody s rating agency in This rating was affirmed by the Moody s agency in April A significant achievement of 2007 was the fulfilment of the ambitious business plan of achieving 89,000 new policy holders. Policy holders started fully using new services offered by the fund at the end of 2006, and the number of policy holders optimising the possibilities of deducting items from income tax through the Tax Optimum service increased. Our objective is to service 500,000 policy holders by the end of the year. 10

13 Report of the Board of Directors The rating agency Moody s adwarded PF KB rating Aa1.cz. Strategy for the Development of the Fund and the Outlook for 2008 The strategy of PF KB is to strengthen the position on the market and ensure long-term financial stability of the fund. The Company wants to fulfil this strategy through pursuing an active business policy, professional approach to the existing and new policy holders and conservative strategy in investing our policy holders funds. The Company managed to fulfil the set objectives in financial indicators in Our market share increased in terms of the number of policy holders, as well as the volume of managed funds. The strategy for 2008 is to maintain the share on the ever-increasing market, which should result in achieving 500,000 active policy holders by the end of 2008 and over CZK 26 billion in managed funds. We markedly strengthen our cooperation with Komerční banka s distribution network and other subsidiary or fellow subsidiary companies from within the Komerční banka and Société Générale financial groups, especially with Modrá pyramida stavební spořitelna, a.s. We will prepare a comprehensive offering of financial products and services of the entire Komerční banka and Société Générale financial group for our policy holders. We will attract new policy holders in cooperation with key external networks that provide clients with quality financial advisory services. With regard to employers recruiting from among corporate and budget-driven organisations, we will predominantly use Komerční banka s client potential that has a significant market share in large, medium-sized and small companies. We will also reinforce measures for the security of existing policy holders and their funds. The Company s business activities will be supported by a massive marketing campaign. In the area of administration of assets through the implementation of a conservative investment strategy, the Company diversifies investments while simultaneously decreasing the volatility and risk profile of the portfolio. PF KB further strengthens its professional approach to managing assets through deepening its cooperation with top professionals from the Société Générale and Komerční banka financial group. The Company fully implements the system of credit risk management used by Komerční banka. This will provide our policy holders with secure and competitive appreciation of invested funds. As in the previous year, we will focus on effectively managing operating costs including acquisition costs and complete the process of the fund s real estate portfolio optimisation. We will actively participate in the preparation and implementation of changes in the retirement benefit system, which should contribute to further transparency of the system and making the retirement benefit schemes more attractive. 11

14 Report of the Board of Directors Major Events in 2007 In February 2007, the rating agency Moody s awarded PF KB the Aa1.cz rating. This positive rating reflects the conservative investment strategy of the fund, its effective functioning and the support of the parent company, Komerční banka, a.s. The rating considers the Company s ability to fulfil its annual obligations to the retirement policy holders in the fund within its investment portfolio. PF KB s Market Share Another significant achievement of 2007 was the fulfilment of an ambitious business plan. Almost 89,000 new policy holders chose PF KB. Policy holders started fully using the new Tax Optimum service offered by the fund at the end of 2006, and the number of policy holders optimising the possibilities of deducting items from income tax through this service increased. The conservative investment strategy of the fund was adjusted on the basis of an updated ALM analysis and will be implemented during the course of The commission system of the fund was reviewed, improved and transferred to the remit of an independent department directly subordinated to the Managing Director. The trend of dynamic growth in the retirement benefit schemes market continued in 2007 and PF KB clearly benefited from such growth. The total number of PF KB s policy holders increased by 13 percent and achieved 470,315 as of 31 December 2007, which represents an 11.9 percent share on the market. The aggregate volume of the policy holders funds increased by 21 percent to over CZK 22 billion and the fund s market share on the market strengthened to almost 14 percent. The very good result of the distribution network of Komerční banka significantly supported the increase in PF KB s market share in both given indicators. The subsidiary Modrá pyramida stavební spořitelna, whose distribution network was fully used in mediating new policies and provision of quality services to the existing retirement benefit scheme policy holders, significantly contributed to the excellent result of the fund. Penzijní fond Komerční banky offers its services through the ever-growing network of Komerční banka s branches and the sales points of Modrá pyramida stavební spořitelna. In 2007, the Company was successful in tenders conducted by many significant employers. The number of policy holders who receive contributions from their employers increased to over 130 thousand and their share on the total number of policy holders achieved 28 percent. Last year, PF KB paid out over 30,000 benefits in the aggregate amount of CZK 1.46 billion. 12

15 Report of the Board of Directors Information Technology Business Activities The fund continues to deepen its cooperation with the parent bank in terms of its marketing and business activities. The Company significantly widened the business support of Komerční banka s distribution network and its banking advisers. We present the pension fund and the retirement benefits scheme actively at our meetings with corporate clients. As part of the marketing strategy, Penzijní fond Komerční banky divides potential clients into segments to be able to better identify the motives for concluding a retirement benefit scheme. The fund respects the segment approach to the clients set out by the parent company. In 2007, the fund applied an open approach already used in the previous years in the area of marketing dividing the marketing campaign into a spring and an autumn campaign. In the spring campaign, the fund focused the communication principally on the presentation of economic results of the Company and the achieved appreciation, and the autumn campaign then communicated tax benefits to employees and employers. The Company makes use of the increased interest of employers in the retirement benefit scheme over the period of collective negotiations for the next year. During the year ended 31 December 2007, the Company continued optimising its operations with the objective of improving the services provided to our clients and making our portfolio services more effective. The services provided to our clients further improved and we created conditions for providing high quality services to an increasing number of policy holders in the future. The fund sent out over 380,000 letters to the retirement benefit scheme policy holders, and registered another approximately 390,000 new documents relating to our policy holders contracts in the database. Concurrently, the Company received 5.4 million policy holder contributions in the aggregate amount of almost CZK 2.84 billion. More than 130,000 policy holders received contributions from their employers. In 2007, the contributions from employers amounted to almost CZK 832 million. In the area of State Subsidies to Pension Funds ( SDPF ), we claimed over 5.4 million state contributions amounting to CZK million. We paid almost 30,000 benefits totalling nearly CZK 1.46 billion. The number of documents stored in our electronic archives increased by 405 thousand documents to million in To increase the policy holders satisfaction, the Company carried out adjustments of the structure and design of the regularly sent annual statements from individual accounts in To support the on-line sales and servicing of policy holders, the Company routinely used the internet application which enables on-line access to the fund s database from all the network branches of Komerční banka including Komerční banka s Call Centre. The number of quality service points increased to a total of 424 all over the Czech Republic through the gradual widening of the network in Concurrently, the application enables access to our database also for policy holders who have internet access and can maintain contact with the Company through this highly valuable channel. The number of policy holders interested in this service is continuously growing, thus reinforcing our decision to develop this comfortable and user-friendly channel which allows our policy holders to stay in contact with our Company. In parallel, clients have the opportunity to obtain a retirement benefit policy via the Internet at In 2007, the Company continued in its strategy to gradually innovate the application program equipment, i.e. gradual transition of individual program modules to the full three-layer architecture with migration to the JAVA platform and increasing the security of operations with an emphasis on its fast restoration in possible crisis situations. We will continue to offer our policy holders high quality services in the future. In an effort to provide potential clients with more comprehensive services, PF KB s retirement benefit scheme is appropriately increased by a unified offering of products and services of the Komerční banka financial group. These offers are used principally in participating in the tenders conducted by employers. 13

16 Report of the Board of Directors Comments on the Financial Situation and Results PF KB s net profit amounted to CZK million. Human Resources The Company s teams of employees and management definitely represent the key and stabilising elements of Penzijní fond Komerční banky and the condition of its further successful development. In 2007, PF KB continued to rely on a stabilised team to conduct its activities. The aggregate number of employees slightly increased, through strengthening of the Sales Division and hiring of a lawyer and a human resources manager, to a total of 58. Due to the necessity to reinforce the management team and the quality of the Company s management, a crucial change was made to the Company s management during the first quarter of The management was strengthened by managers with hands-on experience from the environment of Komerční banka, a.s., which is fully used for the benefit of the Company. A significant factor influencing the highly dynamic growth of financial indicators was the high number of newly acquired policy holders who joined PF KB in the last few years. In 2007, Penzijní fond Komerční banky noted dynamic growth of funds registered in favour of policy holders for the fourth time in a row, up to CZK 22.7 billion. There was a year-on-year increase of CZK 3.9 billion, i.e. of almost 21 percent. In 2007, the Company generated a net profit of CZK million. Considering the negative development on the capital markets in the latter half of the year, the level of generated profit can be seen as very positive. The second significant factor positively impacting the economic result was the amount of costs. Through consistent control, costs were decreased below the budgeted level in respect of the majority of items. PF KB s revenues in 2007, as a result of active management of assets, can be divided into two time periods. Revenues were positively impacted by favourable conditions on capital markets in the first half of the year. The situation reversed in the second half of 2007 and the negative trend continued until the end of The portfolio was structured according to this development during the course of the last year. The proportion of shares and participation certificates in the portfolio was gradually reduced in favour of conservative, especially governmental, debt securities. The average proportion of debt securities and treasury bills was approximately 88 percent of the portfolio during the year. The proportion of shares was approximately 7 8 percent (the structure of the portfolio as of 31 December 2007 is presented in the Overview of the Placement of PF KB s Funds). The generated profit will make it possible to appreciate clients funds at 2.33 percent p.a. The management was strengthened by managers with hands-on experience from the environment of Komerční banka, a.s., which is fully used for the benefit of the Company. 14

17 Report of the Board of Directors Overview of the Placement of Funds their amount as of 31 December 2007 CZK thousand % 1 Debt securities 19,032, Treasury bills 494, Shares and participation certificates 1,677, Financial assets (bank accounts) 720, Non-operating real estate 162, Other investments 209, Total 22,298,

18 Statutory Bodies Statutory Bodies Board of Directors Pavel Jirák (1966) Chairman of the Board of Directors and Managing Director Graduate of the Prague University of Economics, Faculty of Economics and Public Administration (1991). Employed by the Company since Professional experience: 17 years. Vojtěch Kubec (1955) Vice-chairman of the Board of Directors and Director of the Sales Division Graduate of Prague Technical University focus on Engineering Technology (1979). Employed by the Company since Professional experience: 27 years. Radek Cmíral (1973) Member of the Board of Directors and Director of the Finance Division (since 1 March 2007) Graduate of the Prague University of Economics, Faculty of Economics and Public Administration (1998). Employed by the Company since Professional experience: 11 years. 16

19 Statutory Bodies Kamil Kočí (1962) Member of the Board of Directors and the Head of the Project Management Department Graduate of the Prague Technical University, major in Economics and Management (1985). Employed by the Company since Professional experience: 23 years. Miloš Rýznar (1964) Member of the Board of Directors and Sales Director Graduate of the Prague University of Economics, Faculty of Transportation and Communications (1987). Employed by the Company since Professional experience: 21 years. Changes in the Composition of the Board of Directors Antonín Kopřiva (1968) Member of the Board of Directors and Sales Director (until 28 February 2007) Supervisory Board Pavel Čejka Chairman of the Supervisory Board (since 17 October 2007) Petr Slabý Vice-chairman of the Supervisory Board (since 17 October 2007) Vladimír Jeřábek Member of the Supervisory Board (since 20 April 2007) David Formánek Member of the Supervisory Board (since 1 March 2007) Dagmar Lomecká Member of the Supervisory Board Iva Jiráková Member of the Supervisory Board Changes in the Composition of the Supervisory Board Petr Slabý Chairman of the Supervisory Board (until 16 October 2007) Pavel Čejka Vice-chairman of the Supervisory Board (until 16 October 2007) Philippe Delacarte Member of the Supervisory Board (until 10 January 2007) 17

20 Organisational Structure of the Company Organisational Structure of the Company General Meeting Supervisory Board Board of Directors Managing Director Secretariat Lawyer Human Resources Project Management Sales and Finance Client Marketing Services External Distribution KB Retail, Investment Management Accounting and Networks Corporate + TC and Risk Management Reporting and Marketing and Employers 18

21 Ownership Structure Almost one third of PF KB s policy holders receive retirement benefit contributions from their employers. Ownership Structure Shareholder Ownership percentage Komerční banka, a.s. 100 General Meetings in 2007 Through a resolution of the sole shareholder acting in the capacity as the General Meeting on the annual results of Penzijní fond Komerční banky, a.s. dated 19 April 2007, the Board of Directors Report on the Company s Performance and Financial Position as of and for the year ended 31 December 2006 and the financial statements of the Company for the year ended 31 December 2006 were approved and the sole shareholder made a decision on the allocation of the profit for the year ended 31 December The share of profit approved by the General Meeting for allocation to the retirement benefit policy holders enabled the Company to credit the individual accounts of policy holders with a yield of 3 percent p.a. for

22 Report of the Supervisory Board Report of the Supervisory Board The Supervisory Board, as the oversight body of Penzijní fond Komerční banky, a.s., oversaw the performance of the Board of Directors and the implementation of the Company s business activities in The Supervisory Board carried out tasks arising from the relevant statutory provisions and the Articles of Association of the Company. It regularly reviewed whether the Company s activities complied with generally binding legal regulations, resolutions adopted by the General Meeting, Articles of Association, Statute and the Pension Plan of the Company and with the interest of the retirement benefit scheme policy holders and the Company s sole shareholder. During 2007, the Supervisory Board regularly received information about the Company s activities. In 2007, the Supervisory Board held four regular meetings and adopted a resolution through voting without a meeting. In addition to the activities referred to above, the Supervisory Board focused on the review of the fulfilment of the planned business and financial results of 2007, the investment strategy of PF KB, as well as its planned change, monitored the fulfilment of the measures aimed at decreasing commission expenses and the process of optimising income from the real estate portfolio and continuously provided the Board of Directors with suggestions, recommendations and proposals of measures leading to the improvement of PF KB s activities. The Supervisory Board received and investigated a complaint and monitored the accepted conclusions made and measures taken by the Board of Directors of Penzijní fond Komerční banky, a.s. The Supervisory Board discussed the resignation of a member of the Supervisory Board, Philippe Delacarte, on 26 January 2007, and elected Pavel Čejka as the Chairman of the Supervisory Board and Petr Slabý as the Vice-chairman of the Supervisory Board on 17 October Pursuant to a resolution of the sole shareholder and following approval by the Czech National Bank, Vladimír Jeřábek was elected a new member of the Supervisory Board with effect from 20 April The Supervisory Board reviewed the Report on Related Party Transactions for the year ended 31 December 2007 prepared in compliance with Section 66a (9) of the Commercial Code. Based on the submitted documentation, the Report states that Penzijní fond Komerční banky, a.s. incurred no detriment in the reporting period from 1 January 2007 to 31 December 2007 in respect of the contracts and agreements concluded between related parties. The Supervisory Board, after reviewing the financial statements of Penzijní fond Komerční banky, a.s. for the year ended 31 December 2007 and pursuant to the independent auditor s report, states that the records and accounting books were maintained in a clearly supportable manner and in compliance with generally binding regulations applicable to accounting. The financial statements prepared on the basis of these accounting records give a true and fair view of the performance and financial position of Penzijní fond Komerční banky, a.s. The auditor, Deloitte Audit s.r.o., audited the financial statements of Penzijní fond Komerční banky, a.s. and issued an unqualified opinion. Reflecting these facts, the Supervisory Board recommends that the sole shareholder approve the financial statements for the year ended 31 December The Supervisory Board reviewed the proposal of the Board of Directors on the allocation of the profit of CZK 562,256, and recommends that the sole shareholder approve the proposal (see to table right). In Prague on 28 March 2008 Pavel Čejka Chairman of the Supervisory Board 20

23 Report of the Supervisory Board Proposal for the Allocation of the Profit for 2007 Units Profit to be allocated by the General Meeting CZK 562,256, Reserve fund (5%) CZK 28,112, Social fund CZK 400, Equity programme CZK 1,300, Profit for retirement benefit beneficiaries CZK 1,221, Subsidy of the special purpose reserve CZK 0.00 Dividends CZK 0.00 Retained earnings CZK 53,303, Profit to be distributed to policy holders CZK 477,918, Percentage of the profit distributed to policy holders % Profit to be distributed to policy holders %

24 Auditor s Report Auditor s Report Deloitte Audit s.r.o. Registered address: Týn 641/ Prague 1 Czech Republic Tel.: Fax: DeloitteCZ@deloitteCE.com Registered at the Municipal Court in Prague, Section C, File Id Nr.: Tax Id Nr.: CZ Independent Auditor s Report to the Shareholder of Penzijní fond Komerční banky, a.s. Having its registered office at: Lucemburská 1170/7, Prague 3, Identification number: Principal activities: Collection of funds from retirement benefit policyholders and the State for the benefit of policyholders, management of the collected funds for the purpose of their reliable appreciation, payment of retirement benefits to policyholders Report on the Financial Statements Based upon our audit, we issued the following audit report dated on 29 February 2008 on the financial statements which are included in this annual report on pages 25 to 48: We have audited the accompanying financial statements of Penzijní fond Komerční banky, a.s. which comprise the balance sheet as of 31 December 2007, and the profit and loss account and statement of changes in equity for the year then ended, and a summary of significant accounting policies and other explanatory notes. Statutory Body s Responsibility for the Financial Statements The Statutory Body is responsible for the preparation and fair presentation of these financial statements in accordance with accounting regulations applicable in the Czech Republic. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Act on Auditors and International Standards on Auditing and the related application guidelines issued by the Chamber of Auditors of the Czech Republic. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material 22

25 Auditor s Report misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of the financial position of Penzijní fond Komerční banky, a.s. as of 31 December 2007, and of its financial performance for the year then ended in accordance with accounting regulations applicable in the Czech Republic. Report on the Related Party Transactions Report We have also reviewed the factual accuracy of the information included in the related party transactions report of Penzijní fond Komerční banky, a.s. for the year ended 31 December 2007 which is included in this annual report on pages 49 to 52. This related party transactions report is the responsibility of the Company s Statutory Body. Our responsibility is to express our view on the related party transactions report based on our review. We conducted our review in accordance with International Standard on Review Engagements (ISRE) 2400 and the related application guidelines issued by the Chamber of Auditors of the Czech Republic. Those standards require that we plan and perform the review to obtain moderate assurance as to whether the related party transactions report is free of material factual misstatements. A review is limited primarily to inquiries of Company personnel and analytical procedures and examination, on a test basis, of the factual accuracy of information, and thus provides less assurance than an audit. We have not performed an audit of the related party transactions report and, accordingly, we do not express an audit opinion. Nothing has come to our attention based on our review that indicates that the information contained in the related party transactions report of Penzijní fond Komerční banky, a.s. for the year ended 31 December 2007 contains material factual misstatements. Report on the Annual Report We have also audited the annual report for consistency with the financial statements referred to above. This annual report is the responsibility of the Company s Statutory Body. Our responsibility is to express an opinion on the consistency of the annual report and the financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing and the related application guidelines issued by the Chamber of Auditors of the Czech Republic. Those standards require that the auditor plan and perform the audit to obtain reasonable assurance about whether the information included in the annual report describing matters that are also presented in the financial statements is, in all material respects, consistent with the relevant financial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the information included in the annual report is consistent, in all material respects, with the financial statements referred to above. In Prague on 13 June 2008 Audit firm: Deloitte Audit s.r.o. Certificate no. 79 Represented by: Diana Rogerová, authorised employee Statutory auditor: Diana Rogerová, certificate no

26 Sworn Statement Sworn Statement Penzijní fond Komerční banky, a.s. declares that all information and data included in this annual report is true and complete. Moreover, PF KB declares that this document reflects all matters that are of relevance to the decision-making of retirement benefit policy holders and potential policy holders. Penzijní fond Komerční banky, a.s. additionally declares that no adverse changes in PF KB s financial position or any other changes that may have an impact on the accurate and correct assessment of PF KB s financial position occurred prior to the date on which the annual report was prepared. In Prague on 14 May 2008 Signed on behalf of the Board of Directors by: Pavel Jirák Chairman of the Board of Directors and Managing Director Radek Cmíral Member of the Board of Directors and Director of the Finance Division 24

27 Financial Section Financial Section Contents 26 Balance Sheet as of 31 December Off-Balance Sheet Accounts as of 31 December Profit and Loss Statement for the year ended 31 December Statement of Changes in Equity for the year ended 31 December Notes to the Financial Statements for the year ended 31 December Report on Relations Party Transactions for the year ended 31 December

28 Balance Sheet as of 31 December 2007 Balance Sheet as of 31 December 2007 CZK thousand Item no. Name of item Note Gross Adjustment Net Net Assets 1 1. Cash in hand, deposits with central banks Cash in hand Deposits with central banks Government zero-coupon bonds and other securities eligible for refinancing with the CNB Government securities Other securities Amounts due from banks and savings banks 8 720, ,909 1,428, payable on demand 9 720, ,909 1,428, other receivables incl. term deposits over seven days Amounts due from non-banking entities 11 73,123 73, payable on demand other receivables 13 73,123 73, Debt securities 14 19,527, ,527,624 17,008, issued by government entities 15 16,349, ,349,942 14,963, issued by other entities 16 3,177, ,177,682 2,045, Shares, participation certificates and other investments 17 1,677, ,677, , Shares , , , Participation certificates and other investments 19 1,274, ,274, Investments in associated undertakings in banks in other entities Investments in subsidiary undertakings in banks in other entities Intangible assets 26 50,108 41,249 8,859 12, Start-up costs Goodwill Other intangible assets 29 49,880 41,249 8,631 8, Acquisition of intangible assets and advances paid , Tangible assets ,251 63, , , Land and buildings for operating activities ,578 30, , , Other tangible assets ,673 32, , , Operating tangible fixed assets (w/o buildings and land) 34 41,460 29,066 12,394 13, Acquisition of tangible fixed assets and advances paid Lands and buildings for non-operating activities ,187 3, , , Non-operating tangible fixed assets (w/o buildings and land) 37 13, ,989 16, Acquisition of tangible fixed assets (non-operating) and advances paid Other assets , , , Other cash values Trade receivables and receivables from employees 41 8, ,229 8, State receivables state contribution , , , State receivables tax receivables 43 57, ,455 15, of which: deferred tax 44 39, ,125 4, Receivables from securities trading (w/o unpaid securities) Inventory Estimated assets , Receivables from shareholders nad partners Deferred expenses and accrued income , , , Deferred expenses and accrued income , , , Accrued income Total assets 52 23,261, ,610 23,083,497 19,907,830 26

29 Balance Sheet as of 31 December 2007 CZK thousand Item no. Name of item Note Liabilities Amounts due to banks and savings banks payable on demand other liabilities Amounts due to non-banking clients Payables from debt securities Issued debt securities Other payables from debt securities Other liabilities 60 22,717,396 18,842, Trade creditors 61 25,779 41, Payables to employees 62 1,815 1, Social security payables 63 1, Payables to state state contributions Payables to state tax liabilities 65 7,195 12, of which: deferred tax 66 3,883 8, Negative fair value of derivatives 67 2, Estimated liabilities and other liabilities 68 11,007 14, Funds of retirement benefit policy holders 69 22,667,727 18,771, Policy holders and state contributions 70 20,277,303 16,650, Funds for the payment of pensions 71 69,671 55, Yields from policy holders contributions 72 2,251,077 1,963, Unallocated contributions of retirement benefit policy holders 73 57,686 77, Payables from awarded outstanding one-off compensations 74 11,990 24, Accrued expenses and deferred income 75 1,404 1, Accrued expenses 76 1,402 1, Deferred income Reserves 78 6,317 3, Reserves for pensions and other related payables 79 6,317 3, Reserves for taxes Other reserves Subordinated liabilities Share capital , ,000 of which: share capital paid up , , Treasury shares Share premium Reserve funds and other funds from profit , , Mandatory reserve funds , , Reserve fund for treasury shares Other reserve funds Other funds from profit 91 72,385 72, of which: pension reserve fund 92 70,640 71, Revaluation reserve Capital funds Shareholders capital contributions Other capital funds Gains or losses arising from revaluation 97 (686,088) 65, Gains or losses arising from the revaluation of assets and liabilities 98 (686,088) 65, Retained earnings or accumulated losses , Retained earnings , Accumulated losses Profit/(loss) to be approved Profit or loss for the accounting period Total liabilities

30 Off-Balance Sheet Accounts as of 31 December 2007 Off-Balance Sheet Accounts as of 31 December 2007 CZK thousand Item no. Name of item Off-Balance Sheet Assets 1. Committed facilities and guarantees granted 0 0 a) commitments 0 0 b) guarantees and warranties 0 0 c) gaurantees from bills of exchange 0 0 d) guarantees from letters of credit Pledges granted 0 0 a) real estate pledges 0 0 b) cash pledges 0 0 c) securities 0 0 d) other Receivables from spot transactions 0 0 a) interest rate instruments 0 0 b) currency instruments 0 0 c) equity instruments 0 0 d) commodity intstruments Receivables from term transactions 0 0 a) interest rate instruments 0 0 b) currency instruments 1,229,843 0 c) equity instruments 0 0 d) commodity intstruments 0 0 e) credit instruments Receivables from option contracts 0 0 a) interest rate instruments 0 0 b) currency instruments 0 0 c) equity instruments 0 0 d) commodity intstruments 0 0 e) credit instruments Receivables written off Assets provided into custody, administration and safe-keeping 0 0 of which: securities Assets provided for management 21,787,006 18,935,907 of which: securities 21,204,964 17,506,956 28

31 Off-Balance Sheet Accounts as of 31 December 2007 CZK thousand Item no. Name of item Off-Balance Sheet Liabilities 1. Committed facilities and guarantees received 0 0 a) commitments 0 0 b) guarantees and warranties 700,000,000 0 c) gaurantees from bills of exchange 0 0 d) guarantees from letters of credit Pledges accepted 0 0 a) real estate pledges 0 0 b) cash pledges 0 0 c) securities 0 0 d) others 0 0 e) collateral securities Payables from spot transactions 0 0 a) interest rate instruments 0 0 b) currency instruments 0 0 c) equity instruments 0 0 d) commodity intstruments Payables from term transaction 0 0 a) interest rate instruments 0 0 b) currency instruments 1,233,597 0 c) equity instruments 0 0 d) commodity intstruments 0 0 e) credit instruments Payables from option contracts 0 0 a) interest rate instruments 0 0 b) currency instruments 0 0 c) equity instruments 0 0 d) commodity intstruments 0 0 e) credit instruments Assets received into custody 0 0 of which: securities Assets received for management 0 0 of which: securities

32 Profit and Loss Statement for the year ended 31 December 2007 Profit and Loss Statement for the year ended 31 December 2007 CZK thousand Item no. Name of item Note Interest income and similar income 1 649, ,380 of which: interets income from debt securities 2 633, , Interest expenses and similar expenses of which: interest expenses from debt securities Income from shares and other holdings 5 14,504 33, Fees and commission income Fees and commission expenses 7 (169,153) (145,081) of which: commission from acquisition activities (116,297) (87,404) 6. Net profit/(loss) from financial operations 8 181, , Other operating income 9 34,384 29,118 income from non financial placement of policyholders' funds 10 13,544 11, Other operating expenses 11 (2,961) (7,638) income from non financial placement of policyholders' funds 12 (567) (975) 9. Administrative costs 13 (128,455) (130,437) 9.1 Staff costs 14 (45,887) (43,665) Salaries and wages incl. remuneration of board members 15 (32,858) (31,143) Social security and health insurance 16 (10,576) (10,405) Other social costs 17 (2,453) (2,117) 9.2 Other administrative costs 18 (82,568) (86,772) Marketing costs 19 (32,668) (31,536) Administrative costs including consumed material and utilities expenses 20 (49,900) (55,236) 10. Use of reserves and provisions for tangible and intangible assets of which: non financial placement of policyholders' funds Use of reserves for tangible assets Use of provisions for tangible assets Use of provisions for intangible assets Depreciation, creation of reserves and provisions 26 (15,076) (14,586) of which: non financial placement of policyholders' funds Depreciation of tangible assets 28 (8,847) (8,727) 11.2 Creation of reserves for tangible assets Creation of provisions for tangible assets 30 0 (1,674) 11.4 Amortisation of intangible assets 31 (6,229) (4,185) 11.5 Creation of provisions for intangible assets Use of provisions and reserves for receivables and guarantees , Use of provisions for receivables and guarantees , Use of reserves for receivables and commitments from guarantees Profit from transferred receivables and guarantees Write-offs, creation of reserves and provisions for receivables and guarantees 37 0 (481) 13.1 Creation of provision for receivables and commitments from guarantees Creation of reserves for quarantees Write-offs of receivables and commitments from guarantees 40 0 (481) 14. Use of provisions for investments in subsidiaries and associates Creation of provisions for investments in subsidiaries and associates Use of other reserves including pension reserves Creation of other reserves including pension reserves 44 (3,544) (1,929) 18. Use of other provisions Creation of other provisions and write-offs of financial investments 46 0 (215) 20. Profit/(loss) from ordinary activities before tax , , Extraordinary income Extraordinary costs Profit or loss from extraordinary activities before tax Income tax 51 (147) Share of profit or loss from associates Profit or loss for the period after taxation , ,754 30

33 Statement of Changes in Equity for the year ended 31 December 2007 Statement of Changes in Equity for the year ended 31 December 2007 CZK thousand Item no. Name of item Share capital Opening balance 200, ,000 Increase 0 0 Decrease 0 0 Conversion of convertible bonds to shares 0 0 Exercise of options and warrants 0 0 Closing balance 200, , Treasury shares Share premium fund Opening balance 0 0 Increase 0 0 Decrease 0 0 Closing balance Reserve funds Opening balance 183, ,344 Obligatory allocation 26,438 31,045 Other increase 0 0 Decrease 0 0 Closing balance 209, , Other funds from profit Opening balance 72,901 73,129 Increase 2,656 2,501 Decrease 3,172 2,729 Closing balance 72,385 72, Gains or losses from revaluation not included in profit or loss Opening balance 65, ,721 Increase 39,558 9,852 Decrease 791, ,057 Closing balance (686,088) 65, Retained earnings Opening balance 9,500 (7,807) Increase 0 18,382 Decrease 9,500 1,075 Closing balance 0 9, Accumulated losses brought forward Opening balance 0 0 Increase 0 0 Decrease 0 0 Closing balance Net profit/(loss) for the period 562, , Dividends 0 0 Directors fees 0 0 Equity 358,380 1,060,060 31

34 Notes to the Financial Statements for the year ended 31 December 2007 Notes to the Financial Statements for the year ended 31 December Backround Information 1.1. Incorporation and Description of the Business Penzijní fond Komerční banky, a.s. (henceforth the Company ) was formed by a Memorandum of Association as a joint stock company on 27 July 1994 and was incorporated following its registration in the Register of Companies held at the Court in Prague on 28 November The Czech Finance Ministry issued a licence in respect of the incorporation and operations of the pension fund on 24 November The Company s issued share capital is CZK 200,000 thousand. The following table shows individuals and legal entities with an equity interest greater than 20 percent and the amount of their equity interest: Shareholder Ownership percentage Komerční banka, a.s. 100 Total 100 The Company is primarily engaged in providing retirement benefit schemes under Act 42/1994 Coll. on Retirement Benefit Schemes with State Contribution and Changes in Several Acts related to its Implementation, as amended. The Company conducts its business solely on the territory of the Czech Republic Changes and Amendments to the Register of Companies During the year ended 31 December 2007, changes in the Board of Directors and the Supervisory Board, described in greater detail in Note 1.5., were recorded to the Register of Companies Adjustments of Articles of Association In the year ended 31 December 2007, the Articles of Association were adjusted predominantly in respect of the updating of the organisational rules and revised approval authorities Organisational Structure The Company s organisational structure in 2007 was as follows: Department of the Managing Director Finance Department Trade and Marketing Department Client Service Department The Company is part of the Komerční banka, a.s. financial group Board of Directors and Supervisory Board During the year ended 31 December 2007, the following changes were made to the composition of the Board of Directors and Supervisory Board: Position Name Board of Directors Member Antonín Kopřiva (until 28 February 2007) Member Radek Cmíral (since 1 March 2007) Supervisory Board Chairman Petr Slabý (until 30 June 2007) Chairman Pavel Čejka (since 17 October 2007) Member Philippe Delacarte (until 10 January 2007) Vice-chairman Petr Slabý (since 17 October 2007) Member Vladímír Jeřábek (since 20 April 2007) 32

35 Notes to the Financial Statements for the year ended 31 December 2007 Composition of the Boards as of 31 December 2007: Position Name Board of Directors Chairman Pavel Jirák Vice-chairman Vojtěch Kubec Member Kamil Kočí Member Radek Cmíral Member Miloš Rýznar Supervisory Board Chairman Pavel Čejka Vice-chairman Petr Slabý Member David Formánek Member Vladimír Jeřábek Member Dagmar Lomecká Member Iva Jiráková 2. Accounting policies and general accounting principles The Company s accounting records are maintained and the financial statements were prepared in accordance with Accounting Act 563/1991 Coll., Czech Accounting Standards for reporting entities that maintain their accounts under Notice 501/2002 Coll., as amended, and relevant regulations, guidance notes and notices, specifically Notice of the Czech Finance Ministry 501/2002 Coll., which provides implementation guidance on certain provisions of Accounting Act 563/1991 Coll., as amended. The accounting records are maintained in compliance with general accounting principles, in particular the historical cost valuation basis, accruals principle, prudence concept and going concern assumption. The presentation of financial statements requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date and their reported amounts of revenues and expenses during the financial reporting period. These estimates are based on the information available at the balance sheet date and actual results could differ from those estimates Tangible and Intangible Fixed Assets Tangible and intangible fixed assets include assets with an acquisition cost greater than CZK 40,000 and CZK 60,000, respectively, on an individual basis and an estimated useful life greater than one year. Purchased tangible and intangible fixed assets are valued at acquisition cost. Assets costing less than CZK 40,000 and CZK 60,000 are not treated as tangible and intangible assets, respectively, and are charged through Consumed purchases and Services, respectively. The cost of tangible asset improvements exceeding CZK 40,000 for the taxation period increases the acquisition cost of the related tangible fixed asset. The cost of completed intangible asset improvements exceeding CZK 40,000 for the taxation period increases the acquisition cost of the related intangible fixed asset. Depreciation of Fixed Assets Depreciation for Accounting Purposes Depreciation of fixed assets is recorded on a straight line basis over the depreciation period indicated below. Category of assets Depreciation period in years Buildings and structures 40 Machinery and equipment, cabinets for computer equipment 4 Electronic archive 6 Vehicles 7 Air-conditioning units 12 Safes and fire resistant cabinets 15 Furniture and fixtures 8, 6 * Software 4, 5, 10 Note: * For assets put into use subsequent to 1 January

36 Notes to the Financial Statements for the year ended 31 December 2007 In accordance with the amended Notice 501/2002 Coll., non-operating assets have no longer been depreciated with effect from 1 January Non-operating tangible assets are initially recognised at cost. Pursuant to the requirements set out in Section 33 of Act 42/1994 Coll., the Company remeasures its assets at fair value. Changes in measurement are recorded to the account Gains or losses arising from revaluation with the exception of a decline in value due to other-than-temporary impairment. Immovable assets are remeasured at market values annually on the basis of independent appraisal reports. In the year ended 31 December 2007, no impairment of non-operating buildings, last identified in 2006, was identified. The Company recognised an impairment charge equal to the identified impairment in No other than the above tangible and intangible assets were provided for in 2007 and Securities All securities held by the Company are divided into portfolios when acquired in accordance with the Company s intent and the securities investment strategy. All securities held by the Company are recognised using settlement date accounting provided that the period between the contract date and the fulfilment of the commitment arising from this contract is not longer that the period typical for the relevant type of transaction. Upon acquisition, all securities held by the Company are stated at fair value which is mostly equal to the cost and direct transaction costs, if any, related to the purchase. The Company recognises all securities as Securities available for sale. Securities Available for Sale Securities available for sale are securities not recognised within Securities at fair value through profit or loss or Securities held to maturity. This portfolio comprises shares, debt securities and participation certificates. Securities available for sale are reported at fair value. Accrued interest income is reported in the profit and loss statement. Unrealised profit and loss from the revaluation of securities at fair value are reported as a component of equity within Gains and losses form revaluation not included in the profit and loss until they are sold, settled or impaired. If no price of a security, for which the security is traded on securities markets, is available, the fair value of the security is determined on the basis of the present value of future cash flows Derivative Financial Transactions A derivative is a financial instrument: that requires little initial net investment; whose fair value changes in response to the change in a specified interest rate, security price, commodity price, foreign exchange rate, index of prices, or similar variable; and that is contracted and settled at a future date. The Company uses certain derivative financial instruments to hedge against foreign exchange rate risks to which it is exposed as a result of its financial market transactions. The Company designates a derivative as hedging only if the criteria set out below are met at the designation date. The derivative financial instruments used by the Company as hedging instruments include currency forwards and swaps. The criteria for a derivative instrument to be accounted for as a hedge include: At the inception of the hedge, the documentation identifies the hedged item and the hedging instrument, defines the risk that is being hedged and the approach to assessing whether the hedge is effective, and the hedging relationship is formally documented; The hedge is expected to be highly effective at inception and throughout the period; and Changes in the fair value of the hedged item are almost fully offset by changes in the fair value of the hedging instrument and the results are within a range of 80 percent to 125 percent. The Company only accounted for a fair value hedge during the reporting period. Changes in the fair value of derivatives that are designated and qualify as fair value hedges and that prove to be highly effective in relation to the hedged risk, are recorded in the profit and loss statement along with the corresponding change in the fair value of the hedged asset that is attributable to the specific hedged risk. The ineffective element of the hedge is charged directly to the profit and loss statement. On this basis, the Company hedges the selected portfolios of foreign currency assets. The effectiveness of the hedge is regularly tested on a quarterly basis through prospective and retrospective tests. 34

37 Notes to the Financial Statements for the year ended 31 December Loans and Receivables Receivables are stated at amortised cost net of provisions. Provisions are made based upon the results of the inventory taking, to the extent that the carrying values of assets are lower than the actual balance. The Company recognises provisioning charges in respect of past due receivables, receivables from the issuers of debt securities arising from outstanding coupons and nominal values. The Company makes a full provision against outstanding coupons. Default interest on outstanding coupons is not recognised as a component of receivables on the face of the balance sheet and is recorded as a contingent gain off balance sheet. The Company monitors, in the supporting accounting sub-ledgers, charges for provisions that are allowable for tax purposes in accordance with the Provisioning Act 593/1992 Coll., and charges for non-tax deductible provisions. The Company did not receive or provide any loans in the years ended 31 December 2007 and Pension Policy Costs The Company amortised pension policy costs on a straight line basis over four years for the years ended 31 December 2002, 2001 and In the year ended 31 December 2003, the calculation of the average life of a pension policy was updated and led to an extension of the period over which pension policy acquisition costs are amortised to eight years. The Company continued amortising pension policy costs on the same basis in 2006 and Provisioning and Reserving Policies Provisions are made against assets based on the count results to the extent that the values of the assets are lower than their carrying values and this impairment is temporary. Reserves are recognised, when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. In the year ended 31 December 2007, the Company continued to carry an actuarial reserve for commitments arising from retirement benefit policies Foreign Currency Translation Transactions denominated in foreign currencies during the year are recognised in Czech crowns and re-translated at the exchange rate of the foreign exchange market, promulgated by the Czech National Bank on the date of the transaction. Assets and liabilities denominated in foreign currencies are re-translated into Czech crowns using the exchange rate of the foreign exchange market, promulgated by the Czech National Bank as of the balance sheet date. Foreign exchange gains or losses from the revaluation of foreign currency assets and liabilities are recorded through expenses and income as appropriate Taxation Taxation is calculated in accordance with the provisions of the relevant legislation of the Czech Republic, based on the profit or loss recognised in the profit and loss statement prepared under Czech Accounting Standards. Deferred income tax is provided, using the balance sheet liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. The currently enacted tax rates are used to determine deferred income tax. The principal temporary differences arise from depreciation of tangible fixed assets, specific and general provisions for loans, securities revaluation and tax losses carried forward. Deferred tax assets in respect of unutilised tax losses carried forward and other temporary differences are recognised to the extent that it is probable that future taxable profits will be available against which the tax assets can be utilised Accounting Treatment for Retirement Benefit Schemes with State Contribution Contributions made by retirement benefit policy holders are recorded to Account 372 Funds on policyholders accounts and Account 374 Payables from retirement benefit scheme contributions. State contribution claims in respect of the last quarter are recorded to Account 347 Settlement with the state budget. Claims from lump-sum payments to policy holders (lump-sum settlement, one-off compensation and transfers) that have been awarded but not yet effected are reported within payables (with the maximum period from the awarding of the claim to its payment being three months). The aggregate amount of all pension claims is recorded in long-term payables and this payable is reduced as the pensions are paid. The difference between the sum of funds in the so called personal accounts of pension beneficiaries and the anticipated aggregate long-term payable under pensions represents the valorisation to pension beneficiaries and is covered by the pension reserve fund (the Company s statutory fund). The aggregate long-term payable under pensions was not discounted in the accounting books in the years ended 31 December 2007 and 2006, and was carried at its nominal value. The pension reserve fund had been established in the period prior to 2001 from state contributions refunded by policy holders in circumstances where the policy was terminated earlier and a lump-sum settlement was made. This reserve fund is additionally adjusted by an equalisation fund which is created from profits and decreased to reflect valorisations of pensions awarded to pension beneficiaries. 35

38 Notes to the Financial Statements for the year ended 31 December Amounts due from banks CZK thousand Current accounts 19,813 17,881 Term placements 701,096 1,411,070 Total 720,909 1,428, Amounts due from non-banking entities CZK thousand Receivables 73,123 73,123 Provisions (73,123) (73,123) Total 0 0 The receivables shown above include receivables arising from outstanding matured debt securities. These receivables are more than 36 months past their due dates. 5. Securities Securities are reported on the face of the balance sheet as follows: CZK thousand Debt securities including treasury bills 19,527,624 17,008,161 Shares and participation certificates 1,677, ,795 Total 21,204,964 17,506,956 All securities are held in the Securities available for sale portfolio. CZK thousand Market value Market value in 2007 in 2006 Debt securities issued by banks 1,426,303 1,454,236 Debt securities issued by corporations 15,855,067 13,966,120 Other debt securities 1,751, ,797 Treasury bills 494, ,008 Shares and participation certificates for sale 1,677, ,795 Total securities available for sale 21,204,964 17,506,956 The proportion of debt securities to the aggregate balance of securities was 92.1 percent as of 31 December Under Section 34 (3) of Act 42/1994 Coll. on Retirement Benefit Schemes, the portfolio of the pension fund s assets must not include more than 20 percent of the aggregate nominal value of securities issued by the same issuer. This limitation does not apply to bonds listed in Section 3 (2) (a) and (b) (specifically bonds issued by the OECD member state or the central bank of the state, the European Investment Bank, the European Bank for Reconstruction and Development and the International Bank for Reconstruction and Development). The Company carried no equity investments in associates or subsidiaries for the years ended 31 December 2007 and All securities are traded on the stock exchange. 36

39 Notes to the Financial Statements for the year ended 31 December Tangible and intangible fixed assets Intangible Fixed Assets Cost CZK thousand Balance Additions Disposals Balance at at 31 December 31 December Software 43,661 6, ,678 Low value intangible FA Acquisition of intangible FA 3,499 2,746 (6,017) 228 Total 47,362 8,763 (6,017) 50,108 Accumulated Amortisation CZK thousand Balance Additions Disposals Balance at at 31 December 31 December Software (34,818) (6,229) 0 (41,047) Low value intangible FA (202) 0 0 (202) Total (35,020) (6,229) 0 (41,249) Net Book Value CZK thousand Software 8,843 8,631 Low value intangible FA 0 0 Acquisition of intangible FA 3, Total 12,342 8,859 Amortisation of Intangible Fixed Assets Charged to Expenses CZK thousand Amortisation of intangible fixed assets 4,185 6,229 37

40 Notes to the Financial Statements for the year ended 31 December 2007 Tangible Fixed Assets Cost CZK thousand Balance at Additions Disposals Revaluation Balance at 31 December gains 31 December 2006 or losses 2007 Land 20,546 0 (31) (1,564) 18,951 Operating 12, ,000 Non-operating 8,546 0 (31) (1,564) 6,951 Buildings, halls and structures 311,933 4,773 (1,559) ,815 Operating 165,805 4, ,578 Non-operating 146,128 0 (1,559) ,237 Individual movable assets 73,405 3,497 (18,939) (2,576) 55,387 Operating 56,831 3,497 (18,930) 0 41,398 Non-operating 16,574 0 (9) (2,576) 13,989 Machinery and equipment 1st depreciation group 44,651 1,365 (18,906) 0 27,110 Vehicles 1st depreciation group 7,361 1, ,724 Furniture and fixtures 2nd depreciation group 19, (33) (2,576) 17,601 Other equipment 3rd depreciation group 1, ,753 Other equipment 4th depreciation group Other tangible fixed assets (low value tangible fixed assets) Investments under construction 931 7,376 (8,270) 0 37 Operating 931 7,376 (8,270) 0 37 Non-operating Total 406,876 15,646 (28,799) (3,472) 390,251 Accumulated Depreciation and Provisions CZK thousand Balance at Additions Disposals Balance at 31 December 31 December Buildings, halls and structures (26,571) (4,299) 0 (30,870) Operating (26,571) (4,299) 0 (30,870) Non-operating Individual movable assets (43,386) (4,548) 18,929 (29,005) Operating (43,386) (4,548) 18,929 (29,005) Non-operating Machinery and equipment 1st depreciation group (33,573) (3,517) 18,896 (18,194) Vehicles 1st depreciation group (4,786) (676) 0 (5,462) Furniture and fixtures 2nd depreciation group (4,539) (137) 33 (4,643) Other equipment 3rd depreciation group (488) (218) 0 (706) Other equipment 4th depreciation group Other tangible fixed assets (low value tangible fixed assets) (61) 0 0 (61) Provision against non-operating assets due to other-than-temporary impairment (3,287) 0 0 (3,287) Total (73,305) (8,847) 18,929 (63,223) 38

41 Notes to the Financial Statements for the year ended 31 December 2007 Net Book Value CZK thousand Land 20,546 18,951 Operating 12,000 12,000 Non-operating 8,546 6,951 Buildings, halls and structures 282, ,658 Operating 139, ,708 Non-operating 142, ,950 Individual movable assets 30,019 26,382 Operating 13,445 12,393 Non-operating 16,574 13,989 Machinery and equipment 1st depreciation group 11,078 8,916 Vehicles 1st depreciation group 2,575 3,262 Furniture and fixtures 2nd depreciation group 15,074 12,958 Other equipment 3rd depreciation group 1,093 1,047 Other equipment 4th depreciation group Other tangible fixed assets (low value tangible fixed assets) 0 0 Investments under construction Operating Non-operating 0 0 Total 333, ,028 Depreciation of Tangible Fixed Assets Charged to Expenses In the year ended 31 December 2007, depreciation of tangible assets amounted to CZK 8,847 thousand (2006: CZK 8,727 thousand). The Company began taking steps to sell non-operating assets with the carrying value amounting to CZK 162,890 thousand in the year ended 31 December The Company accounts for revaluation of these assets in the amount of CZK (89,065) thousand recognised in equity (refer to Note 13). Aggregate Low Value Tangible Assets not Reported on the Balance Sheet CZK thousand Low value tangible assets not reported on the balance sheet 11,888 12,142 The Company did not purchase or sell any tangible or intangible assets with a subsequent purchase. 7. Other assets CZK thousand Trade receivables and receivables from employees 8,244 9,105 State contribution 152, ,190 Taxes due 57,455 15,997 of which: deferred tax 39,125 4,567 Receivables from securities trading Other cash assets Provisions (15) (324) Estimated receivables 71 1,739 Balance at 31 December 218, ,899 The balance receivable arising from the state contribution pursuant to Section 7 of Act 42/1994 Coll., on Retirement Benefit Schemes was CZK 152,004 thousand and CZK 132,190 thousand as of 31 December 2007 and 2006, respectively. The increase in tax receivables was principally due to the recognition of a deferred tax asset in the amount of CZK 39,125 thousand. Receivables from securities trading are composed of receivables from the portfolio administrator. 39

42 Notes to the Financial Statements for the year ended 31 December Deferred expenses and accrued income Deferred expenses and accrued income amounted to CZK 603,596 thousand and CZK 467,085 thousand as of 31 December 2007 and 2006, respectively. Deferred expenses arising from acquisition commissions in the amount of CZK 603,589 thousand as of 31 December 2007 (CZK 467,085 thousand as of 31 December 2006) represent the most significant item. The increase in expenses in respect of commissions from 2006 to 2007 was largely due to the increase in the number of contracts in the relevant periods. 9. Loans received from banks and clients The Company carried no received loans as of 31 December 2007 and Other liabilities CZK thousand Trade payables, payables to employees and estimated payables 38,601 57,533 Tax payables, payables from social security 8,198 13,032 of which: deferred tax 3,883 8,735 Negative fair value of derivatives 2,870 0 Cash in personal accounts including state contribution not yet collected 22,667,727 18,771,591 Total 22,717,396 18,842, Reserves CZK thousand Balance at Charges Use/Release Balance at 31 December 31 December Other reserves Reserve for pensions 3,729 3, ,317 Total 3,729 3, , Shareholder s equity The balance of the Company s equity was CZK 358,380 thousand and CZK 1,060,060 thousand as of 31 December 2007 and 2006, respectively. Following the decision of the sole shareholder, the profit of CZK 528,754 thousand for the year ended 31 December 2006 was distributed as follows: a mandatory allocation of CZK 26,438 thousand to the Company s reserve fund, an allocation of CZK 484,660 thousand to the policyholders (which amounts to 91.6 percent of the total profit generated by the Company in the year ended 31 December 2006), an allocation of CZK 1,700 thousand to the social fund, CZK 956 thousand was paid as a contribution to the equalisation fund for pensions and the profit for the payment of dividends to the shareholder amounted to CZK 15,000 thousand. Retained earnings in the amount of CZK 9,500 thousand were allocated to policy holders in the year ended 31 December The Company began taking steps to increase its share capital. Share capital structure as of 31 December 2007 CZK thousand Number Nominal Total nominal Category of shares of shares value value of the issue Bearer 2, ,000 Total 2, ,000 40

43 Notes to the Financial Statements for the year ended 31 December 2007 Individual and corporate equity interests: Name of the entity Registered office Ownership percentage Komerční banka, a.s. Na Příkopě 33, Prague Total 100 Shares are not fully negotiable, the General Meeting must approve a transfer to a third party. No changes in the issued share capital were reported during Gains or losses arising from revaluation CZK thousand 2005 Change 2006 Change 2007 in the balance in the balance Shares 93,896 (85,173) 8,723 (57,217) (48,494) Debt securities and treasury bills 257,694 (111,860) 145,834 (606,360) (460,526) Participation certificates (124,113) (124,113) Non-operating assets (84,515) (1,078) (85,593) (3,472) (89,065) Deferred tax (13,354) 9,906 (3,448) 39,558 36,110 Total 253,721 (188,205) 65,516 (751,604) (686,088) 14. Written-offs of non-statute barred receivables and financial investments No trade receivables were written off in the year ended 31 December The Company wrote off trade receivables in the aggregate amount of CZK 481 thousand in the year ended 31 December The most significant balance that was written-off in 2006 was the Sandbox receivable of CZK 455 thousand. 15. Interest income CZK thousand Interest income on current accounts and term placements 16,150 10,152 Interest income on securities 633, ,228 Total interest income 649, ,380 In the years ended 31 December 2007 and 2006, the Company incurred no interest expenses. The year-on-year increase in net interest income is attributable to the increased size of the interest rate portfolio and the development of rates on the financial market. 16. Income from shares and other holdings Income from shares and other holdings principally comprises income from dividends in respect of the shares held in the availablefor-sale portfolio. 17. Net commission and fee expense CZK thousand Commission and fee expense 169, ,081 of which: portfolio administration expenses 48,314 53,337 Net fee expense 169, ,081 The increase in the commission and fee expense from 2006 to 2007 is principally due to the increase of the Company s acquisition activities (approximately 89,000 new contracts). 41

44 Notes to the Financial Statements for the year ended 31 December Net profit/(loss) from financial operations CZK thousand Profit on trading with shares and participation certificates 202, ,392 Profit on trading with debt securities and treasury bills 0 11,351 Foreign exchange gains/(losses) (20,231) (20) Net profit/(loss) from financial operations 181, ,723 Net profit/(loss) from the fair values and settlement of hedging financial derivative instruments is included in Foreign exchange gains/(losses). The aggregate year-on-year decrease in the net profit from financial operations was predominantly attributable to the unfavourable development on the Czech capital market during Analysis of operating expenses and income Other Operating Income CZK thousand Income from the transfer of assets 3,214 8,690 Rental income from real estate 13,544 11,072 Income from terminated contracts, statute barred entitlements and income from unpaid state contribution with lump-sum settlement 14,773 7,478 Other 2,853 1,878 Total other operating income 34,384 29,118 A total of CZK 13,467 thousand representing income from statute-barred policies carrying no entitlement to claim lump-sum settlement payments, including income from the unpaid state contribution in respect of lump-sum settlement, was released to income. Another income amount of CZK 1,306 thousand relates to statute-barred undeliverable entitlements. With regard to the statute barred entitlements, the statute of limitations set out in Section 100 et seq. of the Civil Code was applied. Other Operating Expenses CZK thousand Costs of asset transfers 1,599 4,789 Costs of leasehold real estate Other corrections of prior years Damage, penalties and fines 60 1,698 Other 82 0 Total other operating expenses 2,961 7, Administrative expenses Staff Costs and Number of Employees 2007 CZK thousand Number Wages and Social Other Total salaries security costs staff and health costs insurance contributions Staff 53 25,803 9,017 2,296 37,116 Management (Board of Directors) 5 6,155 1, ,632 Outsourcing agreements ,097 Supervisory Board Total 32,858 10,576 2,453 45,887 42

45 Notes to the Financial Statements for the year ended 31 December CZK thousand Number Wages and Social Other Total salaries security costs staff and health costs insurance contributions Staff 49 17,650 6,065 1,240 24,955 Management 9 12,496 4, ,497 Outsourcing agreements ,138 Supervisory Board Total 31,143 10,405 2,117 43,665 The number of employees is based on the average re-calculated headcount. The category of management includes members of the Board of Directors in Other Administrative Expenses CZK thousand Sales costs (net of commissions for acquisition activities) including cooperation contracts 42,993 43,095 Consumed purchases 4,425 3,566 SW and HW services 8,390 9,146 Audit, advisory, translations, annual report, depositary 5,930 7,705 Telephone, postal charges, statements of personal accounts 12,866 15,487 Other 7,187 6,525 Taxes and fees 777 1,248 Total other administrative expenses 82,568 86,772 The line Other principally includes other services from external suppliers relating to operating real estate of CZK 2,471 thousand (2006: CZK 3,827 thousand) and repair and maintenance costs of CZK 1,429 thousand (2006: CZK 1,180 thousand). 21. Income tax on ordinary activities, deferred tax liabilities and assets Corporate Income Tax Charge CZK thousand Profit before tax 562, ,979 Items increasing taxable profit 18,201 17,886 Item decreasing taxable profit 636, ,750 Tax base after adjustments (55,771) 3,115 Due tax using the 5 percent rate Tax relief 0 18 Due tax, net of tax relief Standalone tax base 0 0 Tax on the standalone tax base 0 0 Tax from previous years (1) (285) Total tax liability (1) (147) Corporate Income Tax Charge CZK thousand Due tax (1) (147) Deferred tax 148 (628) Total 147 (775) 43

46 Notes to the Financial Statements for the year ended 31 December 2007 Deferred Tax Asset (Liability) CZK thousand Opening balance (4,168) (14,702) Decrease/increase profit and loss statement (148) 628 Decrease/increase revaluation differences 39,558 9,906 Total deferred tax 35,242 (4,168) CZK thousand Deferred tax asset 39,125 4,567 Provisions against receivables and reserves 1 16 Estimated balance for fees and bonuses Provisions against assets Estimated balance for tax loss 2,788 0 Gains or losses from the revaluation of buildings 4,454 4,280 Gains of losses from the revaluation of securities 31,656 0 Deferred tax liability (3,883) (8,735) Differences in net book values of tangible and intangible fixed assets (3,883) (1,007) Gains or losses from the revaluation of securities 0 (7,728) Total deferred tax at 31 December 35,242 (4,168) 22. Additional information on Retirement Benefit Schemes with State Contribution CZK thousand Number of retirement benefit policy holders (individuals) 470, ,757 Number of benefits paid, including transfers for the period: One-off compensation 13,957 13,414 Lump-sum settlement 6,504 4,654 Pensions (number of pension beneficiaries to date) 2,516 1,993 Transfers to other funds 7,294 5,706 Amount of paid benefits, including transfers: 1,457,271 1,278,002 One-off compensation 1,013, ,561 Lump-sum settlement 167, ,813 Pensions 41,692 30,904 Transfers to other pension funds 234, ,724 Depositary of the fund: Česká Česká spořitelna, a.s. spořitelna, a.s. % appreciation of invested funds from profit: profit allocation (net of state contribution) * 3.0 Note: * The figure will be available following the allocation of the profit for the year ended 31 December

47 Notes to the Financial Statements for the year ended 31 December Interest rate risk Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. The length of time for which the rate of interest is fixed on a financial instrument indicates to what extent it is exposed to interest rate risk. The table below provides information on the extent of the Company s interest rate exposure based either on the contractual maturity date of its financial instruments or, in the case of instruments that reprice to a market rate of interest before maturity, the next repricing date. It is the policy of management of the Company to manage the exposure to fluctuations in net interest income arising from changes in interest rates through the gaps in individual groups of assets and liabilities. Those assets and liabilities that do not have a contractual maturity date or are not interest-bearing are grouped in the undefined category. CZK thousand On Up to 3 months 1 year to 2 years to 4 years Over Undefined Total demand 3 months to 1 year 2 years 4 years to 5 years 5 years Cash and amounts due from banks 720, ,927 Debt securities available for sale 0 1,297,333 2,497,196 1,599,391 5,018, ,578 8,120, ,527,624 Shares and participation certificates available for sale ,677,340 1,677,340 Tangible and intangible fixed assets , ,887 Other assets , ,123 Deferred expenses and accrued income , ,596 Total assets 720,927 1,297,333 2,497,196 1,599,391 5,018, ,578 8,120,481 2,834,946 23,083,497 Other liabilities 0 2, ,799 49,669 Funds of policy holders 11, ,830 25,177 19,079 5,068 2,097 11,400 22,434,086 22,667,727 Accrued expenses and deferred income ,404 1,404 Reserves ,317 6,317 Equity , ,000 Reserve funds and other funds from profit , ,212 Gains or losses arising from revaluation (686,088) (686,088) Profit for the period , ,256 Total liabilities 11, ,700 25,177 19,079 5,068 2,097 11,400 22,846,986 23,083,497 Net on balance sheet interest rate exposure at 31 December ,937 1,135,633 2,472,019 1,580,312 5,013, ,481 8,109,081 (20,012,040) 0 More than 90 percent of the Company s assets are invested in fixed-income earning instruments. The Company monitors interest rate risk by assessing two important indicators: modified duration and PVBP (price value basis point). The active management of the portfolio s average duration is of vital importance to the fulfilment of the investment strategy in administering assets, both in terms of short-term corrections in response to the anticipated development of financial markets and adjustments of interest rate risk and a projected cash flow in connection with the development of the Company s on balance sheet liabilities. In managing interest rate risk exposures, the Company does not establish any specific limits. The situation and strategy is discussed and adjusted on a monthly basis at the Company s investment committees with the asset administrator. 45

48 Notes to the Financial Statements for the year ended 31 December Liquidity risk Liquidity risk is a measure of the extent to which the Company will not have enough available sources to meet its commitments associated with financial contracts. The table below provides an analysis of assets, liabilities and shareholder s equity into relevant maturity groupings based on the remaining period from the balance sheet date to the contractual maturity date. Those assets and liabilities that do not have a contractual maturity date are grouped together in the maturity undefined category in the year ended 31 December CZK thousand On Up to 3 months 1 year to 2 years to 4 years Over Undefined Total demand 3 months to 1 year 2 years 4 years to 5 years 5 years Cash and amounts due from banks 720, ,927 Debt securities available for sale 0 654,096 1,813,634 1,599,391 5,167, ,578 9,297, ,527,624 Shares and participation certificates available for sale ,677,340 1,677,340 Tangible and intangible fixed assets , ,887 Other assets 0 10,565 7, , ,123 Deferred expenses and accrued income , ,596 Total assets 720, ,661 1,821,387 1,599,391 5,167, ,578 9,297,957 2,816,628 23,083,497 Other liabilities 0 49, ,669 Funds of policy holders 11, ,830 25,177 19,079 5,068 2,097 11,400 22,434,086 22,667,727 Accrued expenses ,404 1,404 Reserves 0 0 1, ,095 6,317 Equity , ,000 Reserve funds and other funds from profit , ,212 Gains or losses arising from revaluation (686,088) (686,088) Profit for the period , ,256 Total liabilities 11, ,499 26,399 19,079 5,068 2,097 11,400 22,798,965 23,083,497 Net on balance sheet liquidity exposure at 31 December , ,162 1,794,988 1,580,312 5,162, ,481 9,286,557 (19,982,337) Total assets and liabilities denominated in foreign currencies retranslated into CZK, foreign currency risk measurement Assets and Liabilities Denominated in Foreign Currencies CZK thousand EUR Total Bank accounts Participation certificates available for sale 1,274,050 1,274,050 Total 1,274,219 1,274,219 In accordance with legislation and investment objectives, the Company s investment strategy in respect of foreign currencies has been determined on a prudent basis with a specific focus on instruments denominated in CZK, the bulk of investments being made in fixed-income earning instruments. To benefit specifically from short-term growth potentials of foreign markets with fixed-income earning instruments, the Company additionally invested in government bonds denominated in EUR during the year. As of 31 December 2007, the Company held available-for-sale participation certificates denominated in a foreign currency and did not hold any bonds denominated in a foreign currency. The volume of these investments is principally restricted by a cap on foreign currency exposures undertaken by the Company in investing in foreign currency instruments. The foreign currency risk of the Company is measured on an aggregate basis reflecting correlations of currencies as well as through the sum of foreign currency risks of individual currencies included in the Company s portfolio. The Company s foreign currency risk is measured on a daily basis as a minimum. The limit set in respect of the Company s foreign currency risks (confidence level of 95 percent, one-year period) is 1.5 percent of the portfolio. 46

49 Notes to the Financial Statements for the year ended 31 December 2007 Hedging of Foreign Currency Risk Attached to Shares/Investment Funds Shares Held in the Securities available for sale Portfolio Hedging instruments The Company hedges against the risk of foreign currency investments in securities through currency swaps or forwards. The hedging is made through hedging derivative financial instruments concluded for a period between two weeks and one year. Hedged investments are denominated in EUR, hence the hedging is effected from EUR to CZK. For hedge accounting purposes, the effectiveness of the hedges is tested through prospective and retrospective tests. An Overview of Open Derivative Transactions as of 31 December 2007 CZK thousand Positive Negative Nominal value Nominal value fair value fair value of the off-balance of the off-balance sheet asset sheet liability Derivatives designated as fair value hedges (FX swap) 0 2,870 1,229,843 1,233,597 Total 0 2,870 1,229,843 1,233,597 Negative values of financial derivatives are reported as Other liabilities. 26. Loans and guarantees provided to the members of executive, management or supervisory bodies The Company provided no loans to the members of its executive, management or supervisory bodies during the years ended 31 December 2007 and Related party transactions Assets and Liabilities CZK thousand Assets Komerční banka, a.s. 115,869 Commission for acquisition activities, deferred expenses balance Modrá pyramida stavební spořitelna, a.s. 32,170 Commission for acquisition activities, deferred expenses balance Komerční pojišťovna, a.s. 2 Commission for acquisition activities, deferred expenses balance ESSOX s.r.o. 163 Commission for acquisition activities, deferred expenses balance Factoring KB, a.s 6 Rebilling of services, estimated receivable Liabilities Komerční banka, a.s. 1,402 Deferred income for data sharing services 172 Commission, estimated payable 335 Unbilled services, estimated payable Factoring KB, a.s. 111 Rental prepayments received 47

50 Notes to the Financial Statements for the year ended 31 December 2007 Expenses and Income CZK thousand Expenses Komerční banka, a.s. 24 Banking fees 23,096 Commission paid to the branches of Komerční banka, a.s. 24,829 For the use of the trade mark, promotional campaign 466 Advisory services Modrá pyramida stavební spořitelna, a.s. 5,331 Commission for acquisition activities and for cooperation contracts ESSOX s.r.o. 26 Commission for acquisition activities and for cooperation contracts Factoring KB, a.s. 536 Rebilling of services Income Komerční banka, a.s. 483 Income from the sharing of the subsidiaries data 94,850 Sale of the SGAM participation certificates Factoring KB, a.s. 2,945 Rental received 536 Rebilling of services 28. Assets accepted by the Company from third parties and managed by the Company on a third party s account The Company carried no assets accepted from third parties and managed by the Company on a third party s account as of 31 December 2007 and Off-balance sheet commitments, assets under administration and contingent liabilities The Company s off balance sheet accounts reflect the balance of a portfolio received for administration amounting to CZK 21,787,006 thousand. An asset of CZK 1,229,843 thousand and a liability of CZK 1,233,597 thousand are maintained off balance sheet, arising from the hedging of the SGAM participation certificates by hedging derivative instruments. During 2007, the Company acquired securities at a cost of CZK 700,000 thousand, the acquisition cost was guaranteed by Société Générale. The Company retains off balance sheet no securities transactions with the trade date in 2007 and the settlement date in The Company reports no contingent liabilities. The Company was involved in no legal dispute, the outcome of which would significantly impact the Company. 30. Post balance sheet events No significant events occurred subsequent to the balance sheet date that would have a material impact on the financial statements. 48

51 Report on Relations Party Transactions for the year ended 31 December 2007 Report on Relations Party Transactions for the year ended 31 December 2007 (hereinafter the Report on Relations ) Penzijní fond Komerční banky, a.s., having its registered office address at Lucemburská 1170/7, Prague 3, Corporate ID: , incorporated in the Register of Companies, Section B, File 2865, maintained at the Municipal Commercial Court in Prague (hereinafter the Company ), is part of a business group (holding company) Société Générale S.A., having its registered office at 29, BLD Haussmann, Paris, France, registration number in the French Register of Companies: R.C.S. Paris B (1955 B 12022) (hereinafter SG or SG Paris ) in which the following relations between the Company and its controlling entity and further between the Company and other entities controlled by the same controlling entity (hereinafter the Related Entities ) exist. The sole shareholder of the Company is Komerční banka, a.s., having its registered office at Na Příkopě 33/969, Prague 1, corporate ID , incorporated in the Register of Companies maintained at the Municipal Court in Prague, Section B, File SG holds percent of the shares in Komerční banka, a.s. This Report on Relations between the entities stated below was prepared in accordance with the provision of Section 66a (9) of Act 513/1991 Coll., as amended (the Commercial Code) for the year ended 31 December 2007, that is, from 1 January 2007 to 31 December 2007(hereinafter the Reporting Period ). I. Introduction During the Reporting Period, the Company entered into arrangements with the following Related Entities: Company Registered office address SG s share of the voting power Komerční banka, a.s. Na Příkopě 33/969, Prague % Investiční kapitálová společnost KB, a.s. Dlouhá 34/713, Prague 1 100% Komerční pojišťovna, a.s. Karolinská 1/ 650, Prague 8 100% ESSOX s.r.o. Senovážné náměstí 7/231, České Budějovice 100% Modrá pyramida stavební spořitelna, a.s. (MPSS) Bělehradská 128/222, Prague 2 100% Factoring KB, a.s. Lucemburská 1170/7, Prague 3 100% 49

52 Report on Relations Party Transactions for the year ended 31 December 2007 II. Arrangements with Related Entities A. Contracts and Agreements with the Controlling Entity and Other Related Entities I. Contracts and Agreements Entered into during the Reporting Period Type of agreement (or subject matter Contractual party Performance Counter-performance Damage of the agreement if not obvious from of the Company incurred by the name of the agreement) the Company Framework treasury contract (the Komerční banka, a.s. cash consideration mediation of the conclusion none following transactions: currency of transactions swaps, interest rate swaps, FRA transactions, currency options, foreign currency transactions, interest rate options, commodity swaps, commodity options, or combinations thereof or modifications) of 26 January 2007 Mandate contract Amendment no. 2 MPSS cash consideration mediation of the conclusion none of retirement benefit scheme policies Distribution agreement Komerční banka, a.s. cash consideration use of the distribution network none Cooperation agreement Komerční banka, a.s. cash consideration use of the distribution network none Management contract Investiční kapitálová cash consideration asset management none společnost KB, a.s. Contract for the lease of non-residential Factoring KB, a.s. provision of cash consideration none premises and payment for the related non-residential in the form of the rent services dated 20 February 2007, premises Amendment dated 27 March purchase contract Komerční banka, a.s. cash consideration purchase of treasury bills none purchase of treasury bills 9 purchase contract Komerční banka, a.s. cash consideration purchase of participation none purchase of participation certificates certificates 3 purchase contract Komerční banka, a.s. cash consideration sale of participation none sale of participation certificates certificates 12 purchase contract Komerční banka, a.s. cash consideration purchase of bonds none purchase of bonds II. Performance Received and Provided during the Reporting Period under Contracts Entered into in Prior Reporting Periods Type of agreement (or subject matter Contractual party Performance Counter-performance Damage of the agreement if not obvious from of the Company incurred by the name of the agreement) the Company Licence agreement use of the trade Komerční banka, a.s. cash consideration provision of trade none mark of Komerční banka, a.s. mark rights Personal data processing agreement Komerční banka, a.s. provision of information processing of personal data none Amendment no. 1 set by the agreement according to law Personal data processing agreement Komerční banka, a.s. provision of information processing of personal data none set by the agreement according to law Agreement on the use of Komerční banka s Komerční banka, a.s. fees provision of a distribution none distribution network including Amendment network no. 1 thereto cooperation with regard to retirement benefit schemes Agreement on the assignment of a mandate Komerční banka, a.s. fees mediation of the payment none for a payment point payment of retirement of benefits benefits through Komerční banka s branches including Amendment no. 1 thereto 2 agreements on provision of safes Komerční banka, a.s. fees provision of safes none 50

53 Report on Relations Party Transactions for the year ended 31 December 2007 Type of agreement (or subject matter Contractual party Performance Counter-performance Damage of the agreement if not obvious from of the Company incurred by the name of the agreement) the Company Agreement on cooperation with regard Komerční pojišťovna, a.s. commission mediation of retirement none to retirement benefit schemes including benefit policies Amendments nos. 1 4 thereto Personal data processing agreement Komerční pojišťovna, a.s. fees processing of personal data none according to law Mandate agreement Komerční pojišťovna, a.s. consideration mediation of retirement none benefit policies Asset management agreement including Investiční kapitálová cash consideration asset management none Amendments nos. 1 and 4 thereto společnost, a.s. management of the Company s assets Personal data processing agreement ESSOX s.r.o. provision of data processing of personal data none according to law Mandate agreement including MPSS consideration mediation of retirement none the Amendment thereto benefit policies Contract for cooperation in retirement MPSS commission mediation of retirement none benefit schemes, including Amendments benefit policies nos. 1 4 thereto Personal data processing agreement MPSS provision of data processing of personal data none according to law 1 purchase agreement Komerční banka, a.s. cash consideration purchase of treasury bills none purchase of treasury bills 1 purchase agreement Komerční banka, a.s. sale of treasury bills purchase of treasury bills none sale of treasury bills 23 purchase agreements Komerční banka, a.s. cash consideration sale of shares none purchase of shares 22 purchase agreements sale of shares Komerční banka, a.s. sale of shares cash consideration none 18 purchase agreements Komerční banka, a.s. cash consideration purchase of bonds none Agreement on cooperation on the bank Komerční banka, a.s. cash consideration and organisation and none advisors MEM Extra Liga competition provision of prizes administration for the competition of the competition 4 contracts for the best vendor of the Komerční banka, a.s. cash consideration and sale of retirement none retirement benefit scheme provision of certificates benefit schemes in the MEM segment ALM Financial Advisory Komerční banka, a.s. cash consideration financial advisory none Contract for the provision of services Komerční banka, a.s. provision of data cash consideration none (sharing of data from subsidiaries) Contract for the sale of movable assets Komerční banka, a.s. cash consideration sale of movable assets none Advertising including the rebilled Komerční banka, a.s. cash consideration advertising, promotion, none performance of the KB, a.s. suppliers * printing Framework contract for cooperation Komerční pojišťovna, a.s. cash consideration provision of life insurance none Mandate contract including ESSOX s.r.o. consideration mediation of retirement none an amendment thereto benefit schemes Contract for the sale of movable assets Komerční banka, a.s. cash consideration sale of movable assets none Advertising including the rebilled Komerční banka, a.s. cash consideration advertising, promotion, none performance of the Komerční banka, a.s. printing suppliers Framework contract for cooperation Komerční pojišťovna, a.s. cash consideration provision of life insurance none Mandate contract including ESSOX s.r.o. consideration mediation of retirement none an amendment thereto benefit schemes Contract for cooperation in retirement ESSOX s.r.o. commission mediation of the conclusion none benefit schemes of retirement benefit scheme policies 51

54 Report on Relations Party Transactions for the year ended 31 December 2007 B. Other Legal Acts Implemented by the Company in the Interest of the Controlling Entity and Other Related Entities During the Reporting Period, the Company paid dividends of CZK 15,000 thousand to Komerční banka, a.s. C. Measures Taken or Implemented by the Company in the Interest of or at the Initiative of the Controlling Entity and Other Related Entities During the Reporting Period, the Company did not take or implement any measures in the interest of or at the initiative of Related Entities. III. Conclusion The Board of Directors of the Company has reviewed all arrangements put in place between the Company and the Related Entities during the Reporting Period and states that the Company incurred no damage as a result of any contracts, agreements, any other legal acts or any other measures taken or implemented by the Company in the Reporting Period. In Prague on 18 February 2008 Pavel Jirák Chairman of the Board of Directors Vojtěch Kubec Vice-Chairman of the Board of Directors Kamil Kočí Member of the Board of Directors Radek Cmíral Member of the Board of Directors Miloš Rýznar Member of the Board of Directors 52

55 Penzijní fond Komerční banky, a.s. Lucemburská 1170/7, Prague 3 Vinohrady, Czech Republic phone: , fax: pf-kb@pf-kb.cz internet: Consulting, design and production: B.I.G. Prague, 2008